🖼️ NFT: Not For Taxing?

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THE STREET SAYS

RESULTS: Last week we asked: Do you think April's year-over-year CPI reading will be higher or lower than 8.6%? 46% of you said HIGHER, while 54% of you said LOWER meaning the LOWER's have it. The consumer price index came in at 8.3% in April, more than the 8.1% estimate and near the highest level in more than 40 years.

NEXT UP: We're asking this question tomorrow in our daily newsletter, The Flag, but we want to hear your thoughts first: According to the Wall Street Journal, nationwide, 40% of the most popular baby-formula brands were out of stock in the week that began April 24.

🍼 Who's to blame for the shortage? The government or the manufacturers? Click here to vote.

REVIEW

US stocks rose Friday led by gains in the information technology and consumer discretionary sectors. All 11 S&P 500 sectors ultimately ended up finishing in the green.

Some attributed the risk-on mentality to the late-session rally Thursday that helped the Nasdaq Composite post a slight gain. This somewhat upbeat sentiment flowed into international stock markets overnight and then buoyed US markets on Friday morning.

Investors appeared to be buying shares of tech companies that have been battered as of late. Apple and Nvidia popped on the final day of the week. American Express, Boeing, and Salesforce jumped as well which helped boost the Dow. Meme-stocks, as they're called, rose as well sending shares of AMC Entertainment, GameStop, and Carvana higher.

Most of Friday's headlines were largely focused on Twitter, which saw its shares tumble after Elon Musk announced his deal to buy the social media platform is on hold. The Tesla CEO contends that he’s “still committed to the acquisition” but first wants to see data on fake accounts.

Despite the upbeat sentiment on the final day of the week, Wall Street is still worried about a confluence of factors causing undue levels of uncertainty.

Inflation is top of mind as it continues to run at a roughly four-decade high. Americans’ purchasing power is eroding so the Federal Reserve is attempting to contain price increases through rate hikes. Some investors are worried, however, that an over-hawkish Fed could increase the risk of a recession. Last week Fed Chairman Jerome Powell said “the process of getting inflation down to 2% will also include some pain.”

Meanwhile, the Russian invasion of Ukraine is still sending shockwaves through the global financial community impacting everything from supply chains to commodity prices. 

On the whole, the Dow fell more than 2% last week, despite Friday’s gains. The S&P 500 lost 2.4% hitting its longest weekly losing streak since 2011, while the Nasdaq tumbled 3%.

Regarding Friday's gains, some believe the mini-rally is emblematic of a dead-cat bounce, or a brief recovery after a substantial fall. This term comes from the idea that "even a dead cat will bounce if it falls from a great height".

The question is, where do markets go from here? We'll leave you with this thought from Morgan Stanley's Mike Wilson (h/t Jonathan Ferro): “Stocks appear to have begun another material bear market rally. After that, we remain confident that lower prices are still ahead. In S&P 500 terms we think that level is close to 3,400, which is where both valuation and technical support lie.”

PREVIEW

Tomorrow, keep an eye out for the New York Fed’s regional manufacturing survey for May. Known as the Empire State Manufacturing Index, the reading increased significantly from March to April, beating analyst expectations. The report noted this followed three months of sluggish activity, with 40% of respondents saying conditions had improved.

Tuesday, April’s retail sales are due. The number increased by 0.5% in March, which analysts attributed to a large jump in gasoline and food prices. May’s NAHB/Wells Fargo (WFC) Housing Market Index is also set to be published. In April the reading showed homebuilder confidence had fallen to a seven-month low. That could be connected to rising mortgage rates and ongoing supply chain problems, which have driven costs higher.

Wednesday, the housing market remains in focus, as April’s building permits and housing starts are set for release. In March, housing starts rose 0.3%, which surprised analysts. Still, housing starts for single-family homes fell, which analysts blamed on rising mortgage rates. Meanwhile, building permits for future construction increased 0.4% in March.

Thursday, weekly jobless claims will be published. While still at lows not seen in decades, the number of Americans filing unemployment claims has upticked recently. April’s existing home sales continue the week’s housing market data theme, as the National Association of REALTORS® says the number fell in March by 2.7%.

Finally, on Friday the advance services report is due which provides quarterly estimates of total revenue and revenue changes for certain service industries. 

On the earnings front, keep an eye out for reports from Tencent Music Entertainment (TME), Home Depot (HD), Target (TGT), Kohls (KSS), and Foot Locker (FL). We have our eyes on Target after the company announced last month that it was pushing back into the resale market amid a new deal with the online retail shop ThredUp. A similar program shut down after a test run in 2015. The resale market checked in at $15 billion last year but is expected to triple by 2025.

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Non Fungible Tokens. Not For Taxing? States Want to Know.

Why is This So Damn Hard? 

Non-fungible tokens, or NFTs, are all the rage these days. Or at least they were before the market’s implosion over the past few weeks. In any event,  some collectors have paid millions of dollars to acquire a unique digital replica of a piece of artwork or product image. 

Some creators are cashing in, but now NFTs are becoming a non-fungible headache for tax authorities. The issue hinges on how to classify NFTs: are they a piece of property? A service? Something else? Tax officials are asking those questions and others as they begin to establish policies concerning the transfer of monkey jpegs. Washington state and Puerto Rico are taking the lead, but other municipalities are expected to follow suit as they seek to get a cut of this newfound trend.

Million Dollar NFT Sales Not the Norm

Just over a year ago, Beeple's “Everydays: The First 500 Days” sold for $69 million, but that type of transaction is rare. Still, authorities see the tax issue as one worth pursuing. 

Bloomberg reports that 31 states have sales taxes for digital products and services, but little if any revenue comes from NFTs. To counter that, Washington and Puerto Rico are poised to be the first two states to issue NFT tax guidance. Both believe they should be subject to sales tax, regardless of the underlying product being digitally-secured and transferred.

Some analysts say Puerto Rico’s regulation may provide a blueprint for US states. While the territory has a broad definition of digital goods it also recognizes NFTs don't easily fit within the current policy.

IRS Not Sharing

As Washington state and Puerto Rico move forward with their plans, the Internal Revenue Service has yet to issue any guidance in terms of taxing NFTs. Broadly speaking the digital assets can act as tangible property, a service, or a combination of both, making it hard to issue clear tax policy.

It doesn’t help that NFTs are traded on the blockchain where transactions are anonymous. Not to mention the parties involved in the sale of NFTs don’t have to exchange their location, making it difficult to tax based on locality. Without guidance states are left to figure it out on their own, causing plenty of confusion, and potentially explaining why many have been slow to act.

Beyond Tesla: Car Plays That Could Also Plug into Your Portfolio

Scouting the Old and the New

The way Tesla (TSLA) grabs all the electric vehicle attention you would think it’s the only way to play the modernized automotive market. Tesla has admittedly led the shift to EVs in many ways, forcing traditional vehicle makers to chase its heels. Still, the electrification of vehicles isn’t the only opportunity in the car market these days.

While it’s true the adoption of EVs is expected to explode in the coming years, autonomous driving is as well. There’s also the need to build out more EV charging stations, and direct-to-consumer sales of vehicles are growing in popularity. Even before those trends shape up, opportunities abound in both the old and new areas of the vehicle market, presenting several trends for investors to think about. 

Fixing Those Cars 

Vehicle repair and parts suppliers may not sound like exciting spaces, but don’t sleep on these sectors. By 2030 EVs are projected to account for 35% of new car sales in the U.S. In the meantime, there are about 300 million gas-powered cars and trucks on the road, which need upkeep and repairs. 

People are holding on to their cars longer given high prices and a lack of supply. The average person will keep their car for 12 years, providing service companies with ongoing business. Two firms that stand to benefit are Genuine Parts (GPC) and O’Reilly Automotive (ORLY). They both have more than $1.5 billion in free cash flow each year.

That’s not to say EVs won’t impact both companies’ future sales. By 2030 EVs are expected to account for 2% of vehicles that are more than six years old. They require 30% less upkeep than traditional cars.

Startups Get in the Game 

EV startups are another potential area of growth. On the EV ride-sharing front, Revel, a Brooklyn-based startup, is attractive to some private investors because it has its own charging infrastructure. 

Their systems are operational in Brooklyn and now they’re expanding their fleet of 100% electric cars and mopeds. The company also lets third parties use its charging system, diversifying its revenue stream along the way.

AmpUp is another startup that could succeed by making it easier for people to charge their electric vehicles. The company has a mobile app that locates charging stations and then schedules appointments. AmpUp also serves the charging station owners, providing software that can help them control access while analyzing and optimizing energy usage.

The EV market is taking off, but that doesn’t mean Tesla is the only road forward. There are several possible directions to take when looking at how to play both the traditional and EV mobility markets.

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Ghosting Hits Corporate America

New Employees Aren’t Showing Up For Work 

Ghosting isn’t only a term that can be applied to friends and lovers. These days, in a tight labor market, companies are getting ghosted by would-be employees who never even show up for their first day of work. It’s hitting restaurants, airlines, cleaning companies, and manufacturers badly, with many of them reporting they are falling victim to employment ghosting. 

Southwest Airlines (LUV) is one example. The airline says 15% to 20% of its new hires don’t show up on their first day on the job. Allied Universal, a security and facilities company also said that roughly 15% of their new hires don’t make it to day one.

Speed Is of The Essence 

The number of no-shows is at a record high for a reason. The labor market is extremely tight and employees are in the driver’s seat. In March the number of job openings and resignations hit the highest levels ever. To fill the gap many companies are turning to technology, in some instances hiring people within minutes of interviewing them or on the spot. 

NetApp (NTAP), a cloud data services provider, has slashed the number of interviews candidates have to go through for certain jobs. It's an effort to speed up the process and not lose the candidate to another employer. 

A Little Payback? 

Would-be employees are listing many reasons for not showing up to work. For some, they received better offers between when they were hired and their start date. For others, they found out the pay was lower or the hours different. Some are even doling out a little payback to companies that ignored them in the past. There’s also a generation of workers who grew up with dating apps in which ghosting, while annoying, is accepted behavior. 

The job market is tight, which means workers have a lot of options. Until that changes, companies will need to get creative to retain talent so they don’t get left lonely on their first date. 

This communication from The Street Sheet is for informational purposes only. It is not intended to serve as a recommendation to buy, sell, or hold any security and is not an offer or sale of a security.  Information contained within should not be perceived as a research report and is not intended to serve as the basis for any investment decision. Any third-party views reflected herein do not reflect the opinion of The Street Sheet. All investments involve risk and the past performance of a security does not guarantee future results or returns. There is always the potential for financial loss when investing in securities or other financial products. Investors should consider their investment objectives and risks before investing.